Question

13-29 Target Costing Bowman Specialists Inc. (BSI) manufactures specialized equipment for polishing optical lenses. There are two models—one (A-25) principally used for fine eyewear and the other (A-10) for lenses used in binoculars, cameras, and similar equipment. The following table shows the manufacturing cost of each unit is calculated, using activity-based costing, for these manufacturing cost pools. Cost Pools Allocation Base Costing Rate Materials handling Number of parts $2.25 per part Manufacturing supervision Hours of machine time $23.50 per hour Assembly Number of parts $2.55 per part Machine setup Each setup $44.60 per setup Inspection and testing Logged hours $35.00 per hour Packaging Logged hours $15.00 per hour urs BSI currently sells the A-10 model for $1,050 and the A-25 model for $725. Manufacturing costs and activity usage for the two products follow:
Need help with #2

Answer 1

2.

Activity	Costing Rate $	A-10		A-25
		Activity Usage	Cost $	Activity Usage	Cost $
Materials handling	2.25	110	247.50	81	182.25
Manufacturing supervision	23.50	5	117.50	2	47.00
Assembly	2.55	110	280.50	81	206.55
Machine setup	44.60	1	44.60	1	44.60
Inspection and testing	35.00	1	35.00	0.5	17.50
Packaging	15.00	0.7	10.50	0.2	3.00
Total activity cost allocated $			735.60		500.90

	A-10	A-25
Direct materials	78.65	42.45
Activity cost	735.60	500.90
Total product cost $	814.25	543.35
	A-10	A-25
Price $	825.00	595.00
Product cost	814.25	543.35
Gross margin $	10.75	51.65

Yes, BSI can make a positive gross margin with the new costs, and meeting the price set by the new competitor.